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Wednesday, November 17, 2010

Duke Energy Claims Cincinnati Taxes Too High: Meanwhile, CEO's Benefits Included $363,573 For 'Personal Use' Of Company Aircraft

Time To Park Duke Energy's Aircraft?
 CINCINNATI (TDB) -- Duke Energy -- whose Cincinnati-area customers pay some of the state's highest electric rates -- is fighting to lower its property tax bills by $40 million across SW Ohio.  Meanwhile, its CEO's compensation package rose to $6.93 million, including what the most recent proxy statement calls $363,573 for "personal use of airplane."  Two other execs got $28,305 for personal use of the plane.  While the utility contends local taxes are too high, the high life seems to go on.  Or maybe the high-flying travel habits of the corporate brass are landing hard on the taxpayers.  Duke's corporate policy requires CEO James E. Rogers to fly on company aircraft for business purposes.  It's all about security, the company says.  But Rogers also gets to use the plane as a perk on private trips.  He can also hop aboard for flights to boards of directors meetings at companies like Fifth Third Bank, where he sat as a director until recently.  Duke's policy looks to fly in the face of the example being set by House Speaker-designate John Boehner, one of the utility's 1.6 million Ohio residential customers.  Boehner said last week he's going to fly on commercial airlines between DC and his SW Ohio home in Cincinnati's northern suburbs.  He won't be using the government aircraft that Nancy Pelosi -- and before her, Dennis Hastert -- used to shuttle House Speaker's around the country.  Republican Boehner will be third in line for the presidency, but he said commercial airliners are safe enough to outweigh any and all security concerns.  Said Boehner:

"I've talked to our security folks about the security involved in my new role.  Over the last 20 years I've flown back and forth to my district on commercial aircraft and will continue to do that."

Duke Energy sees things differently.  The 8-K on file with the Securities and Exchange Commission discloses that the Charlotte, N.C.-based gas and electricity utility is worried about security for its CEO James E. Rogers.  Here's what it says:

"For security reasons, Mr. Rogers is required by the Company to use the Company's aircraft, whenever feasible, for his business travel.  Mr. Rogers is also permitted to use the Company's aircraft for personal travel within North America; however, Mr. Rogers will be required to pay for the cost of personal travel on the Company's aircraft in accordance with the Company's policies, except he is not required to pay for the cost of travel to his annual examination or to meetings of the board of directors to other companies on whose board Mr. Rogers serves.  Mr. Rogers is responsible for any income taxes  resulting from such aircraft usage.  However, to the extent Mr. Rogers incurs expenses associated with his spouse accompanying him on business travel, Mr. Rogers is entitled to reimbursement for those expenses, including payment of a tax gross-up."

The proxy statement includes details that show Rogers got $363,573 in 2009 in "other compensation" for personal use of Duke Energy's aircraft.  [The 2010 data isn't out yet.]  That other compensation comes from the IRS determining that the trips are imputed income.  Imputed income isn't cash, it's often a benefit that isn't paid in cash.  A footnote on page 71 of Duke's proxy statement says:  "Officers are permitted to invite their spouse or other guests to accompany them on business trips when space is available; however, in such events the officer is impute income in accordance with IRS guidelines.  The additional cost . . . is the amount of the IRS-specified tax deduction disallowance, if any, plus any additional carbon credits purchases with respect to the executive officers personal travel."

Meanwhile, Janine Migden-Ostrander, Ohio's consumers counsel, has noted that Duke's residential electric rates are about the highest in the state.  She said the company should refund some of the proceeds from the $40 million tax battle -- but only if Duke succeeds.  Rogers use of the plane, so far, has not been a public issue.   Here's Midgen-Ostrander on Duke's rates for consumers:

"If Duke Energy presses forward to reduce its property taxes paid to schools and local governments, the utility should be required to refund to customers any portion of the taxes that are currently included in its rates. My office - as the residential utility consumer advocate - will take appropriate measures to argue that these refunds occur. At this time, Duke's residential electric rates are among the highest in the state, surpassing those high rates paid in northern Ohio. With residential consumers continuing to struggle and stretch their budgets, a break for customers is only fair if Duke should persist with its plan to reduce its property taxes."

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